Volume 45, Issue 8 - October  2006

Small World

What’s Globalization Doing to 
the Industry? Who is Vulnerable? Where is it Going?

by Alan B. Goldberg

Unlike a passing storm, globalization is here to stay and it is affecting companies of all sizes across the industrial sector. For some, globalization presents opportunities that did not exist. For others, it is a threat and could require a different approach to the market. Views on globalization in the millwork industry are as varied as the situations each company faces. Here are a few of them from manufacturers and distributors.

Opportunities
“My perception of globalization is an interaction of people throughout the world and their economies,” says Joey Shimm, director of marketing for Architectural Products in Bogota, N.J. 

He describes it as a powerful force that can raise standards of living. He says companies that have embraced globalization have seen the rewards through strong growth, although he cautions that a prerequisite for success is compatibility with other cultures. 

“As a distributor, we have made a concerted outreach to any country that can produce a quality product at a better price,” adds Shimm. 

Recognizing opportunities is one thing; pursing them is another. 

“Our company welcomes opportunity, wherever it may present itself,” says Dave Kochendorfer, vice president of Hurd Millwork Co. in Medford, Wis. “But in a changing and competitive market, moving down such a path requires a clear plan of action—objectives and goals—and a level of expectation.”

He says companies that seek partnerships or joint ventures without fully knowing what these arrangements involve could be disappointed with the outcome.

The other side of globalization is the impact of imports. Who is vulnerable? According to Kochendorfer, companies that produce commodities such as hardware components, vinyl and even standard window shapes are affected.

Facing The Challenge
“Globalization is inevitable in our industry, and we are an active participant in exploring the benefits it can bring to our customers,” says Greg Wobscall, president of Truth Hardware in Owatonna, Minn.

He says that, as with other type of business, manufacturers must identify how they provide value to their customers.

“If they cannot enhance their product offering and achieve price levels required by the market through internal manufacturing improvement, they must find another way,” he adds. 

Wobscall points out that for some this has meant a total conversion to importing. For others, it involves a blend. Still other manufacturers continue to fight against the reality of a shrinking world.

While many industry leaders will agree with the need for change as means of survival, one industry leader offers a cautionary note.

“We must be careful because we are losing manufacturing expertise and we are losing technology,” says Robert Mitvalsky, chief executive officer of Builders Automation Machinery in Largo, Fla. “We are no longer teaching machining skills the way we did in the1970’s, while kids in other countries are becoming very proficient. Those trends of 20 years ago are going away and, because we lack the talent, we are losing manufacturing jobs.”

He says that by assembling components or simply packaging products that are coming from overseas, “all of us in the States are vulnerable,” says Mitvalsky. 

He also warns that U.S. companies must be cognizant of pricing and their effects. 

Referring to his own situation, he says the number of “mom-and pop” businesses that offer a high level of personal service and remain competitive have created strong customer loyalty, making it difficult for outsiders to enter the market. 

That is not the case in the vinyl residential windows market, says Tony Pauly, vice president and general manager of Ventana USA in Export, Pa., who sees a market significantly impacted by imports from Asia.

“The benefit of cost effective raw materials and low labor cost has resulted in the manufacture of components being made in Asia. As a result, China will be exporting complete window units to the U.S. and most probably target the big boxes as a distribution channel,” says Pauly.

He points out that U.S. window manufacturers who serve the new construction market with high volume units will have a tough time. 

Wayne Gorell, chairperson and chief executive officer of Gorell Enterprises in Indiana, Pa., agrees.

He says that, while the situation varies with each manufacturer, it poses quite a challenge, if the product is a standard window competing with imports dramatically lower in price. He points out that the cost of vinyl extrusions from the Far East is also significantly lower than from the U.S. and that is not necessarily due to lower labor costs in Asia but, more than likely, government subsidies. 

Custom is the Key
Since his company is strictly a custom manufacturer, Gorell says he is are not overly concerned about the impact of globalization.

Neither is Ventana. Pauly says custom manufacturers who provide a high level of service will be less vulnerable. Using his own company as an example, he says Ventana offers customers a three-to-five-day turn-around. 

Another example is Republic Windows & Doors of Chicago, Ill.

According to vice president of sales and marketing Amy Zimmerman, the company custom builds every window and patio door to exact size, color and glass specifications. 
“The threat of globalization to our current replacement window business would ap
pear to be minimal as it would be very difficult for foreign imports to meet current lead times required by most replacement window dealers,” she says.

She explains that the importation of components is not new. What is new, she points out, is the ability to bring in pre-cut and pre-assembled extrusions of good quality and possibly stock-sized windows for new construction at much lower prices. But she says the solution to that dilemma is in service and customer loyalty.

“What keeps customers loyal and happy is the combination of a competitive price, a reliable product, consistent lead times and great service.”

She says the company’s customers who are builders have, in some instances, found lower prices but did not change because of Republic’s service. Her message to building products manufacturers is, “if (you) want to compete and, more importantly, succeed against lower-priced competition coming in to the U.S., [focus on] quality, service, fast turn-around and innovation. 

A distributor of custom products shares the same view on globalization.

“We are very customized. Everything is made to order using hard wood,” says Marko Latson of Latson’s Custom Millwork in Fort Worth, Texas. He says most of what is being imported is standard materials. Their low cost is becoming hard to resist.

But Latson is also a realist and finds that he too can be the beneficiary of imports as long as they meet his standards.

“We are reaching the point where we have little choice but to consider components, such as engineered stiles and rails, from outside of the country. There was a time when we lived with the ‘Buy America’ mentality. But the reality is that times are changing, competition is increasing and we have to take a hard look at the cost of materials.”

Exporting from the United States
Pauly raises the issue of acceptance of U.S.-made windows in other parts of the world where consumer preference is not the same. For instance, in mainland Europe, he explains, double-hung windows, very popular in the United States, have not been accepted. 

“The European market is mostly tilt-and-turn units, which help circulate air. This type of window is a more practical choice in Belgium, Germany, France, Holland and Scandinavia, where air conditioning is not very prevalent,” he says.

Ventana is able to serve the European market with tilt-and-turn windows manufactured by its sister companies in Germany and France.

Another company that benefits from global operations is HOPPE North America in Ft. Atkinson, Wis., a Swiss-held division of HOPPE AG. According to Pat Junker, vice president of sales for the North American operation, sister divisions located in Europe supply handle and trim components worldwide.

“Seamless interaction between HOPPE divisions is a necessity for proper fulfillment and input into the latest (hardware) trends that can affect design requirements and production needs,” says Junker, who points out that his customers’ global involvement with doors and windows generates large export opportunities with those customers for HOPPE North America.

Adapting to Change
Globalization is already bringing about change. 

According to Mike Huszar, chief operating officer of Millwork Distributors in Oshkosh, Wis., “globalization is forcing us to do a better job and operate more efficiently.” 

One of his biggest challenges is to be able to support his customers while controlling inventory. He depends on product from overseas which he says can take as long as eight to 12 weeks to arrive.

“This delay can put us in a real bind because we have to be responsive,” Huszar says. 

He says the lower cost of imports means the actual dollars of margins are lower which “puts more pressure on us to control our costs. You have to work harder to make less. But globalization is forcing U.S. companies to be better at what they do.”

At the Retail Level
Two retail giants have announced openings in the Far East. Do it Best Corp. of Fort Wayne, Ind., recently opened two offices in China to further expand its rapidly growing global sourcing efforts.

“Our China offices will allow us to source more products than ever before, enhancing margins for our member-owners and helping them stay competitive,” says Jay Brown, vice president of merchandising.

Ace Hardware Inc. of Oak Brook, Ill., recently announced the opening of a global distribution buying office in Shanghai. According to the announcement, the office is the first phase of an initiative to centralize operations in this city. Future plans call for the opening of a new distribution and warehouse facility in Shanghai later this year.

Globalization in the Future
Where will the industry be five years from now? Some are willing to make a prediction while others prefer to hedge. 

“As we look at our markets, we realize that anything is possible, says Kochendorfer. Our predictions are as speculative as looking into a crystal ball.” 

Pauly predicts further challenges over the next five years.

“We will see manufacturing by Chinese companies in this country. In response, I believe we will see U.S. companies develop into global organizations,” he says.

Don DeWolf, president of Hawkeye Building Distributors in Rock Island, Ill., sees a downturn for the building product industry. Although his business—roofing and siding—has not been affected by globalization, others have, most significantly fastener manufacturers have, he says. 

Shimm believes a company’s future could hinge on its approach to globalization. He says there is a price to pay for those who don’t share the vision of globalization and treat it as a negative force. On the other hand, he points out that “opportunities are there for companies that want to participate and accept the challenges that go with it.”

Alan B. Goldberg is a contributing writer for SHELTER magazine.

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